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PINC POWERPICKS RESEARCH
RESEARCH
BAJAJ AUTO: BUY, TP-Rs1,665 (14% upside)
What’s the theme?
With the success of Pulsar135 and Discover twins (100cc and 150cc), Bajaj Auto's brand-centric strategy has
been validated. In its attempt to leverage these brands, Bajai Auto recently launched Discover125cc and is all
set to launch Pulsar250cc in Sep'11. The high-margin brands, Pulsar and Discover, now account for 70% of
the company's motorcycle sales. In addition, continued demand for 3-wheelers and robust exports would help
Bajaj Auto achieve volume growth of 16.2% in FY12 and 11.9% in FY13.
What will move the stock?
1) Despite rising macro headwinds, we expect Bajaj Auto to be less sensitive to such concerns. Given a slew of
product launches in the near future, Bajaj Auto would be able to maintain market share with domestic volume
growth of 16%, in line with industry growth. 2) Export outlook continues to be stable with total exports expected
to touch 1.4mn in FY12. 3) Management expects to improve market share with growth of 22% to 4.8mn units
during FY12 as against our volume estimate of 4.5mn units. 4) Increased proportion of high-margin motorcycles
and continued contribution of three-wheelers would enable the company to tide over the input cost pressures
and restrict the contraction in margins to 70bps 5) Opening up of new permits for three wheelers in Karnataka
would be a further boost to domestic sales 6) The company is in the process of reviving the Boxer brand with
a 150cc motorcycle especially targeted at the rural segment wherein Hero MotoCorp is the dominant player.
Where are we stacked versus consensus?
Our FY12 and FY13 earnings estimates are Rs107.5 and Rs123.3 respectively. We have a 'BUY'
recommendation on the stock with a target price of Rs1,665, discounting FY13E earnings at 13.5x. Our
FY12 earnings estimate is 6.1% higher than consensus estimate of Rs101.3.
What will challenge our target price?
1) Significant increase in prices of commodities such as steel and rubber are likely to pressurise margins.
2) The company draws significant benefits from the DEPB scheme and withdrawal of the same would
impact profitability. In case the incentive is entirely withdrawn, our earnings estimate would reduce ~10%.
(Rs mn) FY10 FY11 FY12E YoY % FY13E YoY %
Net Sales 115,085 159,981 192,131 20.1 218,257 13.6
EBITDA 25,752 33,836 39,090 15.5 44,112 12.8
EBITDA Marg. (%) 21.6 20.4 19.7 (70)bps 19.6 (10)bps
Adj. Net Profits 18,118 26,152 31,106 18.9 35,691 14.7
Dil. EPS (Rs) 62.6 90.4 107.5 18.9 123.3 14.7
PER (x) 23.3 16.1 13.6 - 11.8 -
ROE (%) 78.5 66.7 54.5 (1220)bps 48.0 (660)bps
ROCE (%) 65.4 73.4 68.5 (490)bps 61.4 (710)bps
3
Sector: Auto
CMP: Rs1,457; Mcap: Rs422bn
Bloomberg: BJAUT IN; Reuters: BAJA.BO
Price performance
1,800
1,600
1,400
1,200
1,000
Aug-10 Nov -10 Feb-11 May -11 Aug-11
Sales Volume
Units ('000s)
1,200
900
600
300
0
Sep-09
BJAUT BSE BSE AUTO
2-Wheelers 3-Wheelers Sales grow th (RHS)
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
100
vineet.hetamasaria@pinc.co.in +91-22-6618 6388
nikhil.deshpande@pinc.co.in +91-22-6618 6339
tasmai.merchant@pinc.co.in +91-22-6618 6377
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